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COVID-19's shift to global pandemic ups gold’s year-end price by nearly $200 - Westpac

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(Kitco News) As the COVID-19 outbreak shifted from a Chinese epidemic to a global pandemic, Westpac has upped its gold forecast not only for this year but also for 2021, 2022 and 2023. 

Markets have shifted to trying to pinpoint just how much the U.S. and the European economies are going to suffer due to the coronavirus outbreak, Westpac senior economist Justin Smirk said in his March update.

“As February ended the focus for the COVID-19 outbreak shifted from China to the rest of the world. In particular markets shifted attention to the rapidly expanding outbreak in Italy and the early stages of an outbreak forming in the U.S., and the disruptions this would bring to the European and U.S. economies,” Smirk wrote. 

The quickly spreading virus led to chaotic trading patterns not only in global equity markets but also commodities.

“Oil [is] the key commodity at risk as industrialized economies bunker down while base metals, iron ore and coal remain supported by supply factors and a better demand outlook,” Smirk wrote. “Gold stands out in a high risk environment and we have lifted the year-end target to $1,600/oz from $1,461/oz.”

For this year, Westpac projects prices to average $1,687 in Q2 and $1,663 in Q3 and Q4, up nearly $200 from its February estimates. 

Longer-term, the Australian bank sees gold averaging above $1,600 next year and then rising above $1,700 on a sustainable basis at the end of 2022. 

The U.S. dollar outlook suggests that the greenback is likely to weaken going forward, which is also beneficial for gold. “Given the risks the U.S. economy faces and the willingness of the FOMC to act … the U.S. dollar [is likely to] move lower still, to around 95.0, some 5% off its peak,” Westpac’s update said.   

One of the biggest fears at the moment is just how much the U.S. and global growth are going to be impacted by COVID-19 closures. 

“The primary negative impinging on growth in the U.S. as this crisis starts is business investment. Structures and equipment investment both contracted during 2019 under the weight of the U.S.-China tariff war and uncertainty over global growth,” said the bank’s senior economist Elliot Clarke. 

“Come early 2020, the phase 1 trade deal did little to remove the cost to industry of the trade tensions, on top of which COVID-19 has created yet another significant headwind for globally-oriented firms – our global growth forecast has been revised from 3.0% to 2.6% with downside risk – as well as those focused on domestic demand,” Clarke added.

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